Learn to Day Trade - Get Free Mini Course

What are Investment Mandates and Why Do You Need them?

Investment Mandates
If you want to get a bigger picture of the whole investment process. You should know what investment mandates are and the types of mandates you can find.

In this post I will be discussing the term ‘investment mandate’. Don’t be concerned if you don;t know what it means or how they are relevant to trading or investing. Many successful day traders and investors in the stock market don’t fully understand this term either.

And that’s why I wanted to break down what investment mandates are and what they mean for you and if you really need them in order to become a successful trader. Day trading is not investing, but a lot of people refer to trading as investing. This doesn’t mean you can’t take advantage of those two. The financial world is really vast and wonderful.

If you want to get a bigger picture of the whole investment process. You should know what investment mandates are and the types of mandates you can find.

What Are Investment Mandates?

The definition of an investment mandate is pretty simple. An investment mandate is a set of instructions or guidelines given by an investor to an investment manager (which can be a firm or individual) to manage a pool of capital with the use of a very specific strategy and risk management. That’s basically what an investment mandate is. And they can vary a lot depending on the goals the owner has for that investment. These types of investments play a big role in the management of pool funds.

This means that investment mandates have a wide range of instructions. From goals and priorities to benchmarks and levels of risks. And sometimes a list of funds to avoid or focus on. The use for mandates is big, a private investor that works with a financial planner can make use of this. The same goes for a fund managed by professionals. So they can be used by and are suitable for anyone.

Now when it comes to trading, the trading markets are full of investment mandates. Index funds, Stock Exchanges, traded funds, ETFs, and some portfolios use investment mandates. You can have your mandates too. They have many names in the financial world. Some of them are mandates or fund mandates.

So that’s the meaning of investment mandates. They’re a bunch of instructions set to a document you give to your portfolio manager to help them assign and manage the funds.

Below we look a bit deeper into what are the main components of a typical investment mandate.

how Investment Mandates are developed
The consultation process is very important when it comes to developing an investment mandate – the primary consultation process is between the investor and the investment manager or managers.

What Are the Components of an Investment Mandate?

While they may be different types of investment mandate with a lot of variety in directions and instructions, they pretty much all have the following components in common, to some extent.

i) Objectives – as with any undertaking it’s always important to set the direction from the beginning and this usually starts with objectives to be achieved.

In terms of investment mandates the overarching goals can be capital preservation, income generation or capital appreciation.

ii) Risk Tolerance – how much risk is the investor willing to take on in order to achieve the objectives? Depending on the accepted level of risk the strategies will be set.

iii) Asset Allocation – the mandate should lay out how assets are to be allocated such as stocks, bonds, cash or other options.

iv) Restrictions – the mandate can state that certain sectors be restricted from investing in or there be limits as well.

v) Performance Benchmarks – this is important in order to know the progress the investment manager is making toward the objectives set in the investment mandate.

Related Read: How Fund Administration Services Streamline Investment Processes

How do Investment Mandates work?

It’s pretty simple. Here’s an investment mandate sample. Let’s say you want to invest, right? So, the next thing you do is select a bunch of assets and write them down in a document.

These are your investment mandates. Next, you send this doc to your portfolio manager or your wealth management. They will follow the instructions on the document.

That’s pretty much how it works.

Once established, investment mandates serve as guiding principles for portfolio management activities. Portfolio managers rely on the mandate to make informed investment decisions, including asset allocation, security selection, and risk management strategies.

With performance benchmarks in place from the beginning, there can be regular reviews of progress and adjustments can be made with market changes or changes based on the investors objectives which may shift.

Once established, investment mandates serve as guiding principles for portfolio management activities.
Once established, investment mandates serve as guiding principles for portfolio management activities.

How Are They Developed?

The consultation process is very important when it comes to developing an investment mandate – the primary consultation process is between the investor and the investment manager or managers. 

This is probably the most important part of the mandate development process and during these consultations investors will make known their financial objectives, risk preferences and other specific. The investment manager will then help by providing insight and guidance and basically tailoring the guidelines to suit the investors goals in line with available opportunities.

These mandates also need to take into account legal and regulatory considerations when they are being developed. The legal framework and regulations that need to be considered in mandate development can  include securities laws and compliance standards that are set by governing bodies. This is where legal experts offer their input and guidance which is crucial at the mandate development stage.

How to SIMPLIFY DAY TRADING

Take the FREE Mini Course

Learn to read the markets with confidence and ease (without any financial background) in the next 7 Days

Types Of Investment Mandates

We already know what an investment mandate is. Now we should dive into the types of investment mandates.
Investment Mandates can restrict a wealth manager or a portfolio manager to a set of specific assets. From restricted geographic areas, and industry sectors to market capitalization, and more.

ESG Investment Mandates

ESG stands for Environment, Social, and Governance. This type of mandate will tell the managers to invest in securities that are ethically, socially, and sustainable. As you can imagine. They will avoid doing business with companies that made their money from things like guns, fossil fuels, and others.

Low turnover Investment Mandate

With this one, you can restrict the percentage of the portfolio that can be sold at any period of time. From 5% to 3% in order to have a low turnover.

A global Investment Mandates

This one is pretty simple, a global mandate means that you can have or own stock in your home country and globally.

Long Term Growth Mandates

As the name suggests, long-term growth is one that is set to focus on long-term investment growth. For example, the most common of them: is the stocks. Usually, they are held for a long period of time to get profits.

Small-capitalization Stock Investment Mandate

This means that a portfolio manager needs to research and find assets that are below a certain market price.

International Investment Mandate

An international investment mandate means that you’re restricting your portfolio of doing business outside your home country.

Income Investment Mandate

This type of mandate will focus on getting a passive income from dividends and interest.

All those mandates can be used by individual investors or investing companies. In order to guide how they will invest their money based on goals and priorities.

Investment Mandate: Wrap Up

After reading through this post, I hope you have a better understanding of investment mandates and in simple terms they are basically a set of guidelines that an investor provides for their investment manager.

We have discussed the common components that make up a typical investment mandate as well as the development process and the different types of mandates that are out there.

When it comes to day trading, an investment mandate probably isn’t necessary for you but there is no harm in looking more into these mandates and the possibility of developing one in consultation with an investment manager.

But if you are starting out as I always say its best to simplify your approach to day trading in order to develop into a consistent and profitable trader over time. But at an early stage of trading knowing about invest mandates and the ‘bigger picture’ of investing will only help you grow your knowledge in financial markets and trading.

GOT QUESTIONS? LET'S CHAT
ALREADY A COURSE MEMBER?